Lender Paragon (PAG) is cashing in on the UK's buy-to-let boom, reporting a 98% increase in loan completions over the last six months. Demand looks set to increase further in the second half of the year: Paragon’s buy-to-let (BTL) lending pipeline stands at £864.9 million, up 145% on the same time last year.
Profit-before-tax in the nine months to 30 June 2015 was £97.5 million, up 9.8%. Shares in the West Midlands-headquartered lender trade 1.5% higher at 406p.
Paragon was one of a number of lenders hit by chancellor George Osborne’s proposal to introduce an 8% surcharge on bank profits in an 8 July summer budget. But proposed reductions in tax reliefs for buy-to-let borrowers should not impact the business too much, according to chief executive Nigel Terrington.
‘The recently announced Budget changes may impact some landlords’ investment decisions in the future, but the Private Rented Sector continues to see strong tenant demand, thereby providing the platform for strong and table buy-to-let returns,’ says Terrington.
Analysts at RBC Capital Markets concur. ‘We have previously communicated our belief that the financial impact from the changes for companies exposed to the UK BTL market should not be material,’ writes Peter Leonardos in 29 July research note.
Paragon’s valuation looks attractive, Leonardos says, trading at 8.9-times forecast 42.8p 2016 earnings per share (EPS) and 1.3-times its most recently reported net asset value. EPS for the year to 30 September 2015 are estimated at 34.5p.